Daniel Knowles writes for the Economist about politics and economics and is @dlknowles on Twitter.

Ignore the QE panic-mongering: inflation isn't going up

Just a quick note, seeing as how Mervyn King was up in front of the Treasury Committee today. Lots of MPs – and others – are beginning to worry about the effects of quantitative easing. Poor old Sir Mervyn got rather tetchy about it, arguing that QE is no different to ordinary monetary policy operations, like raising or lowering interest rates. He's right about that. Here's why we shouldn't be worrying about all this funny new electrical money – as Michael Saunders of CitiBank points out:

[The Bank of England] report that overseas investors’ gilt purchases remained high in January, at £9.4bn, versus an average of £6.1bn per month in Q4. However, UK banks net gilt sales totalled £8.0bn (third consecutive month of net sales), and the UK non-bank private sector made net gilt sales of £5.4bn, the third month of net sales in the last four months. QE seems to be succeeding in the narrow aim of boosting private sector liquidity, and so far has not caused overseas investors to lose confidence in the UK’s commitment to low inflation.

High inflation typically means a weaker currency – a worry for foreigners investing in sterling-denominated gilts, because it makes them comparatively less valuable. If the money managers thought QE was likely to cause an enormous burst of inflation, they would jettison gilts and move into safer investments. They're not, hence they must not think that inflation is going to go up.

Oh and neither does the general public. As a YouGov poll yesterday reported, inflation expectations are up – to 2.8 per cent, from 2.6 per cent last month. That's still well below December's level. The man in the street isn't expecting funny QE money to push up prices. Probably, he doesn't even know about it. Consequently, he's not asking for a pay-rise, which is what really starts an inflation spiral.

So stop worrying. Britain's economy is still in a demand slump, with plenty of spare capacity ready to be used up (a horrible economists' phrase for "unemployed people"). That's not falling, just as real wages aren't going up. Unless that changes, we really needn't worry about inflation. If anything, we probably need a little more of it.